Since the introduction of the China AML in August 2008, Chinese courts have experimented with various methods of civil dispute adjudication based on breach of the AML. In general, China’s courts have very limited judicial experience with such cases. A number of civil cases have been brought before the courts, but very few, if any, have resulted in a successful judgment for breach of the AML.
According to incomplete statistics, there have been no less than 13 civil lawsuits based on the AML brought before China’s courts since the AML came into force. Only two of the thirteen cases concern an agreement allegedly prohibited by the AML. The remainder concern abuse of dominant market position. Companies sued as defendants include China Mobile, China NetCom and Tencent for abuse of dominance. Cases in which the defendant was sued for entering into and performance of prohibited monopoly agreements include the Chongqing Insurance Association case and the Johnson & Johnson case for alleged resale price maintenance.
Three cases were settled, which includes the case involving the Chongqing Insurance Association. For the remaining nine abuse of dominance cases, four cases ended with withdrawal or non-prosecution of the case by the plaintiffs. Three cases are still pending, and the results of another three cases are unknown. As far as is publicly available, none of the defendants in the above cases ever won a single case, for which there seem to be common reasons. One of the common reasons given is that it is difficult for a plaintiff to meet its burden of proof, which is very well illustrated by the case of Renren v. Baidu.
- Renren v. Baidu
Baidu, the Chinese flagship search engine provider, was sued by Renren, a Chinese corporate client, for alleged abuse of Baidu’s dominant market position. In this first private lawsuit brought under the AML of China, Renren lost the case.
Baidu has become the largest website and search engine in the Chinese language, handling hundreds of millions of internet search requests on a daily basis. Baidu has been referred to as a “Chinese Google”, but Baidu operates a ranking-by-bidding mechanism that differs from Google’s search ranking results. Under ranking-by-bidding, when an internet user searches through Baidu using a keyword, the company that has paid Baidu for a better ranking would show up in a priority position in Baidu’s search results. If the internet user clicks the website of the company, Baidu would then charge the company an agreed-upon sum.
From March to September 2008, Tangshan Renren Information Service Company (Renren) purchased ranking-by-bidding services from Baidu for its Quanmin Medicine Net website (www.qmyy.com). In June 2008 Renren began scaling down its payments for the ranking-by-bidding service. As a result, the links presented by Baidu to Renren’s website decreased sharply from more than 80,000 down to four per page. The daily traffic on Renren’s website dropped precipitously. Its website had only 701IP on 10 July 2008, as compared with 2,961IP the previous day. As compared with the 4 pages listed on Baidu, a search of the Renren website on Google produced a listing of 6,690 pages.
Renren sued Baidu in the Beijing First Intermediate People’s Court, alleging that Baidu had abused its dominant market position in violation of the AML.mArticle 17 of the AML provides for seven prohibited violations in respect of abuse of dominant market position; however, news reports did not indicate what provision Renren was citing under Article 17. Renren sought to require Baidu to de-block its website and demanded compensation of just over RMB 1,100,000 in damages.
In support of its claims, Renren pointed to several industry reports that state that Baidu’s market share is well above the 50 per cent level that gives rise to a presumption of dominance under the AML. Most notably, Renren cited a press release issued by Baidu itself in October 2008 in which Baidu asserted that its market share exceeded 70 per cent. Renren went on to argue that, as a consequence of Baidu’s dominance, it had no choice but to seek a listing on Baidu and that Baidu’s ranking-by-bidding architecture is the kind of forced transaction prohibited under the AML.
Baidu countered that the “search engine market” alleged by Renren is not a cognizable antitrust market since most search engine activity is free of charge. Baidu also argued that, in all events, Renren’s market share evidence was defective since the cited industry reports were unreliable, amongst other reasons, because they merely captured snapshots over limited periods of time. Baidu also asserted that any claim that it has a dominant market position is rebutted by the fact that competition among fast-emerging search engines is fierce and users can easily switch between competing service providers. Finally, Baidu argued that it had a legitimate business justification for blocking Renren’s website because the site was full of spamming links, which effectively resulted in cheating. The news report was not clear about how these spamming links result in cheating or about whom Renren was cheating.
Renren lost its case because, from the perspective of the court, it failed to prove what constituted the relevant market or the market share of Baidu on that supposed relevant market. Although Baidu asserted that its market share exceeded 70 per cent, the court did not take the assertion as “self-admission” evidence in favor of Renren because Baidu made the assertion prior to, and other than in the course of, the court proceedings. In addition, the court held that the determination of relevant market and market share is to be made on the basis of a scientific and objective analysis, by which the court hinted that mere “assertion or bragging” would not be accepted as evidence in lieu of a scientific and objective analysis.
Similarly, in another case where the defendant was sued for abuse of dominance in the relevant market of the internet e-book and literature market of China, the court did not admit the “bragging” information of the defendant as the evidence against the defendant; in this case, the defendant had previously declared that it had more than 80 or 95 per cent of the internet e-book market of China.
- Supreme People’s Courts Reform on the Burden of Proof
To address the apparent imbalance in the failure ratio between plaintiffs and defendants, in April 2011, China’s Supreme People’s Court (SPC) issued a call for comments on a draft regulation titled “Relevant Issues Concerning the Application of Law in the Trial of Civil Monopoly Dispute Cases” (Draft Regulation). The proposed Draft Regulation seeks to build a working judicial framework for civil disputes under the AML. However, the Draft Regulation does not totally shift the burden of proof required of a plaintiff in an abuse of dominance case.
According to Article 9 of the Draft Regulation, the plaintiff in an abuse of dominance case nonetheless bears the burden to prove what constitutes the relevant market, whether the defendant has dominance, and the monopolistic conduct of the defendant that amounts to abuse of its dominance. Once the plaintiff proves the aforementioned facts, the defendant then bears the burden of proof to show the legitimacy of and/or justification for its actions. It remains to be seen whether or not the SPC will alleviate the burden of proof required of plaintiffs in the finalized regulation.
It seems that plaintiffs in civil litigation alleging a prohibited monopoly agreement would have fewer evidentiary obstacles than plaintiffs in abuse of dominance cases. With respect to monopolistic agreements that are obviously intended to eliminate or restrict competition, the aggrieved party does not bear the burden of proof to show that the effect of the alleged monopolistic agreement eliminates or restricts competition, unless the defendant has provided sufficient proof to the contrary. However, it is not clear what constitutes an obvious intention to eliminate or restrict competition.
- Plaintiff May Wait Until After Administrative Decision or File Lawsuit Immediately
Article 6 of the Draft Regulation allows the plaintiff to file a legal action with the People’s Court immediately, or to wait until a formal decision is published by the relevant anti-monopoly regulatory agency.
In this context it will be noted that China has introduced two mechanisms, administrative and judicial, for enforcing the AML. These two mechanisms have their own distinctive procedures and are intended to complement each other. Often during a civil anti-monopoly dispute, the plaintiff lacks the ability to collect evidence or has no professional expertise to properly assess potentially relevant evidence. If a regulatory agency, such as the NDRC or SAIC, has already published a decision sanctioning a party for monopolistic behaviour, the plaintiff can rely upon the expertise and evidence of the relevant administrative decision to help the plaintiff’s civil lawsuit.
For monopolistic conduct that has not been investigated by a regulatory agency, the plaintiff can still bring a lawsuit directly to a court. If an administrative action and a judicial procedure occur simultaneously, the court, depending on the circumstances, may decide to suspend the judicial proceeding pending the outcome of the administrative procedure. In any event, a court of competent jurisdiction will have the authority to issue a civil anti-monopoly decision without any administrative action having been initiated.
The current civil litigation procedures may not be particularly friendly to plaintiffs under the AML. However, if this Draft Regulation is introduced as proposed, the barriers that currently appear to be limiting private civil anti-monopoly actions in China will be lowered to some extent, at least in terms of showing proof of damage. This will, in turn, very likely result in increased corporate risk of private civil claims relating to enforcement of the AML. Compliance with the AML, and implementing an effective compliance program to mitigate such risks, becomes even more compelling once the Draft Regulation is in force.© 2013 McDermott Will & Emery